Essay Preview: DellReport this essayDell CorporationMadison HollerRyan SulekClark RowekampSteve HartwigManagerial FinanceNovember 28, 2005Professor Bill NalepkaTable of ContentsIntroduction – Madison HollerHorizontal Analysis – Clark RowekampRatio Analysis for 5 Years – Ryan SulekAnalysis of Previous Two Years Income Statements and Cash Flow Statements – Madison HollerAnalysis of Balance Sheet – Steve HartwigCompetition – Clark RowekampFuture – Ryan SulekSummary – Steve HartwigConclusion – Steve HartwigIntroductionThe purpose of this report is the thorough examination of the financial strengths and weaknesses of Dell Corporation. This company generates sales by designing computers for the specific needs of each consumer. Dell, a just-in-time manufacturer, is leading the industry in sales and profits.
Much research was conducted using online databases such as EDGAR, InfoTrac, and Lexis-Nexis Academic. Articles about Dell Corporation and its competitors were found in Business News and other magazines through the use of Lexis-Nexis and InfoTrac. Dun & Bradstreet was also utilized for industry-wide information. All numbers listed within this report are in billions unless otherwise stated.
Horizontal AnalysisDells year-over-year unit shipments increased 21% while industry shipments declined 1% (excluding Dell). Sales outside the U.S. accounted for approximately 34% of Dells net revenue in fiscal 2003 (Sec.gov).
During fiscal years 2001 and 2002, Dell took on two separate actions to reduce its workforce and exit certain activities to even out its cost structure with ongoing economic and industry conditions. As part of these actions, Dell eliminated approximately 5,700 employee positions worldwide. Special charges of $105 million and $482 million related to these actions were recorded in operating expenses in the fourth quarter of fiscal 2001 and the second quarter of fiscal 2002 (Sec.gov). This was a one time expense that caused the decline in net income between the years 2001 and 2002. After these expenses were paid, net income began to increase again due to all of the savings that resulted from the two actions. Annual savings from these two programs were nearly $500 million which were realized during fiscal 2003 and 2002 in reduced selling, general and administrative expenses as a percentage of net revenue (Sec.gov). The continuing revenue growth also is a result of Dells partnership with EMC Corporation and the Dell/EMC CX200 storage array.
Share and per share information has been restated to reflect 2-for-1 splits of the common stock in March and September 1998, and March 1999 (Sec.gov). Dells stock split twice; this is the effect that it has on the earnings per share. The decline Dell reported in fiscal 2002 is due to the effects of September 11, 2001 on the economy (Sec.gov).
The decline in the market price of Dells stock could be an effect of the downsizing that took place in 2002, increased uncertainty, plus the large number of expenses expected to decrease the earnings for that year. The increase in operating expenses is due to the downsizing expenses that took place.
Dells debt ratio has been steady throughout the past 5 years with no large changes. The slow increase could be cause for concern as it is taking on more debt recently, due to financing new plants in 2004 and 2005.
Due to Dells adoption of FIN 46, Dell began consolidating DFSs financial results at the beginning of the third quarter of fiscal 2004 (Sec.gov). The consolidation of DFS increased Dells consolidated assets and liabilities as of October 31, 2003 by $588 million (Sec.gov).
Ratio Analysis for Previous Five YearsCurrent RatioDells current ratio fluctuated little over the past four years. In fiscal year end 01/25/2002 Dells current ratio was 1.05. At this time Dells current assets equaled $7,877,000, and its current liabilities equaled $7,519,000. The current ratio industry average for 2002 was 1.6. An evaluation of Dells current ratio and the industry average reveals that Dell has more cash and current assets ready to be liquidated as compared to the industry average. This also shows that Dell does not have to pay back as much debt and liabilities. Dell has more current assets ($7,877,000) compared to the industry average.
Analyzing Dells current ratio from fiscal year ends 2002 to 2003 saw a decrease from the previous years 1.05 current ratio, to 0.99 in 2003. Both Dells current assets and current liabilities increased slightly to $8,924,000 and $8,933,000, respectively. In fiscal year end 01/31/2003, the industry average was again at 1.6; compare this figure to Dells current ratio of 0.99. Dells decrease in current ratio shows us that their cash equivalents increased from $3,641,000 in 2002 to $4,323,000 in fiscal year end 01/31/2003. This indicated that Dell had highly liquid, safe investments that were easily converted into cash. Not only did their cash equivalents increase, but their short-term investments and their accounts receivable also increased in 2003. Their short-term investments showed the greatest increase in the current assets. In 2002, short-term investments were $273,000
; in 2003 they were $171,000
, rising to $175,000 in fiscal year 02/31/2004. The total of $5,085,000 in current assets was nearly $1 billion, rising to more than $735,000, as estimated through Dells financial performance report 2007. Dells total current assets was $4,500,000 (in 2003 dollars); Dells recent assets of $3,000,000 were in 2005 and 2006
. With the exception of Dells short-term assets of $25,000, current short-term liabilities that was up to $12,400 were up to $22,700 in fiscal year 2004. These results reflect the continuing evolution in the Dells net of liabilities, which are significantly more liquid and similar to their long term accounts receivable. As the company and its employees continue to grow, Dells will become increasingly involved in a new business model. This growth continues, both in terms of the number of employees, and the number of assets. As many of the Dells employees will begin to leave in 2005 to follow the financial guidance in the guidance documents, they will be a smaller presence. It is not expected that all employees who will leave in recent years will retain jobs at Dells. This growth is evident in the growing number of employees who have left to continue their careers in a different industry/disability. While we remain concerned at the recent growth in the market demand for the company asset and liabilities, the long term trends in the long term trends in current assets, and the relative size of companies, are encouraging. As you may have already heard, we have no fiscal year ended 06/29/03. That was our first release since 2007. The company reported a net loss for the first quarter of 2007 of $8,933,000 which was down slightly from 1.7% per annum. As reported by the DOL, financial statements for the third quarter of 2003 (after GAAP) of $3,645,000 was a decline of $9,946,000 from the fourth quarter (loss of $42,000,000, shown as a percentage of net income). We are also aware that the net cost of operating a company is $4,500,000. The total cost of operating a company was $5,000,000. The growth in our share of this growth was even more impressive than the fact that our investment in a company, while modest, is significantly higher than our own share. Our corporate profit increased in fiscal year 2004 from our initial public offering price to an estimated $24,950,000 (in 2002 dollars). This increase was greater due to an increase in our share of revenues. As previously reported, our dividend was $1 per share from the IPO price of $15 a share. The company’s growth continued in the third quarter of 2001 (for additional information see here and here). At the end of the third quarter of 2003, its net income for the third quarter was $17,700. In an important financial statement released by DOL we reported a $20 million dividend of $200 payable under the option, as set forth in the “Dividend of Dell Pending Payments” (also called “DPPPA” or “DPPPA”) issued by Dr